Solar-The Light At the End of Utilities’ Tunnel

Utilities should incorporate solar into their business models in order to remain viable in the power industry.
Published: Fri 25 Apr 2014

 

If you can’t beat them, join them. This is the advice of US Energy Secretary Steven Chu who suggests that utilities get into the very thing that is driving them into a so-called “death spiral”-rooftop solar.

Embrace the solar business

He suggests that utilities get into the rooftop solar business instead of scrambling for new regulations and higher connection charges. The surge in rooftop solar installations has seen US utility profits drop significantly as customers use less grid power in favour of cheaper solar power. As rooftop solar modules drop in price, more customers are likely to install. Even installations have become cheaper due to the drop in solar module prices. [Engerati:Cheaper Solar Installations-Watershed Moment for Distributed Generation and Renewables].

Mr Chu explains that solar panels will have a disruptive effect on electricity production and generation: “The cost of modules has plummeted. In California where I live, that means for US$10,000 you can generate a lot of electricity. The cost of batteries is plummeting, so that in five maybe 10 years at the outside, a US$10,000 or US$12,000 system will allow me to go, on average, 80% off grid.”

This is certainly not news to utilities. A number of well-researched reports have indicated to utilities that it is time for them to transform traditional business models. One such report came from Edison Electric Institute last year-“Disruptive Challenges: Financial Implications and Strategic Responses to a Changing Retail Electric Business”. Another is Deloitte University Press, “Beyond the math:Preparing for disruption and innovation in the US electric power industry.” We discuss both briefly in our article Utilities Can Overcome the “Death Spiral”.

In response to this threat, utilities in the US like Exelon owned ComEd and Pacific Gas & Electric are looking to regulators to save them by adjusting pricing structures so they can recoup more of the costs of maintaining the grid infrastructure.

But Mr Chu says that this is not the solution because if utilities charge customers more to connect to the grid, those charges will also spiral upward as an increasing number of customers install solar systems.

Some utilities have even tried to stagger the growth of solar. One such utility is Hawaiian Electric Company which slowed rooftop solar installations due to “grid stability.” Mr Chu argues that this is not a valid reason since solar installations do not threaten grid stability until they approach 20%-it is currently 2% in Hawaii.

Opt for a new business model

Instead of trying to slow solar development and charge higher tariffs, Mr Chu suggests that utilities opt for a better business model-one that will help utilities benefit from solar.

Mr Chu suggests that utilities loan money to buy rooftop solar modules and batteries, partner with private rooftop-solar installation firms to learn the trade and then begin installing rooftop panels and batteries as part of their business offering. The idea is that utilities will own the panels and batteries and sell electricity to the customers at a much lower rate.

Customers will not only have access to lower rates, they will also get solar power without having to pay for installation. In addition to this, they will get a battery backup that can keep the lights on and the refrigerator running for up to a week during a power outage.

Utility companies can then look forward to the benefits of a distributed network of panels and batteries. Utilities will be able to grow their business without installing new transmission lines. Even the environment gets to benefit as more consumers turn to clean solar power.

Says Mr Chu: “This is not a radical model, it is the old telephone system model, where the telephone companies owned the phone, they rented you the phone for so long, they maintained it.”